Fonterra’s decision to sell its brands business—home to household names like Anchor, Mainland, and Kapiti—to French-owned Lactalis for NZ$3.85 billion has sparked intense debate. While the deal promises a windfall for farmer-owners amid strong dairy prices, critics argue it represents a short-term tactical win but a long-term strategic failure.
When Fonterra was formed, the vision was to climb the value chain—owning brands that could buffer farmers during downturns by capturing higher margins when milk prices fell. However, history shows a different trajectory. In 2001, Fonterra was valued at NZ$7.5 billion versus Kerry Group’s NZ$5.6 billion. Two decades later, Kerry is worth NZ$26 billion while Fonterra lags at NZ$10 billion, a gap attributed to Kerry’s disciplined reinvestment versus Fonterra’s reliance on debt and risky overseas ventures.
Despite strong fundamentals—global milk supply advantage, robust brands, and scale—Fonterra struggled to execute expansion plans in China, Brazil, and beyond. Now, by exiting its brands, it strengthens Lactalis, a global family-owned giant that thrives precisely by building and acquiring brands while relying on others for commodity supply. With ten-year supply contracts in place, Fonterra remains a price-taker, vulnerable to Lactalis eventually pushing down milk prices.
Critics note the irony: as a cooperative, Fonterra should be positioned for long-term strategic decisions, yet it behaves with short-term opportunism. High executive pay—14 staff earning over NZ$1m, the CEO nearly NZ$6m in 2024—underscores a disconnect between ambition and delivery.
The sale also bypasses local opportunities. Fonterra brands could have tapped KiwiSaver’s growing pool of capital, with the NZ$3.8 billion price tag amounting to less than 1% of the NZ$500 billion projected in KiwiSaver funds over 25 years. Instead, New Zealand risks repeating a familiar pattern—foreign buyers acquiring crown-jewel assets while locals applaud the cheque.
In essence, Fonterra’s move illustrates deeper flaws in New Zealand’s corporate culture: an aversion to risk, an overreliance on debt, and a failure to build enduring global champions. The deal may enrich farmers now, but it entrenches Fonterra further at the commodity end of the value chain, leaving the brand-driven profits to Lactalis.
Industry Insight:
Fonterra’s divestment highlights a recurring theme in New Zealand agribusiness—choosing immediate liquidity over long-term value creation. While dairy farmers welcome the cash windfall, the sale risks locking Fonterra into a low-margin supply role. Global players like Lactalis demonstrate that branding, not raw milk, holds real pricing power. With KiwiSaver capital underutilised, the absence of domestic ownership reflects both a missed opportunity and a governance gap. The deal raises urgent questions: Can New Zealand companies ever compete globally in value-added foods, or will they remain perpetual suppliers to multinational brand owners?
Source : Dairynews7x7 Sep 1st 2025 Read full story here at The Post